Intraday and Position (Swing) Trading, What to Choose?

By Anton Kolganov

Scalping, intraday and position /swing (middle-term, pyramid-like) types of trading how do they differ?

At the very beginning of a traders path each one should decide which type of trading suits him the best with regard to: profitability versus risk; trading time consumption; extent of effort required for mastering the chosen type; and possibilities of trading performance improvement in future.

That is, a trader should figure out which type of trading is more comfortable for him than the others. If this choice is made correctly, a trader will avoid many beginner mistakes.

When choosing between types of trading, I suggest you to learn about each one separately. And its better to start from the easiest and the most popular one, namely intraday trading.

INTRADAY FOREX TRADING, DAY TRADING

There are many controversies surrounding this type of trading. Ones believe that intraday forex trading is the shortest path to becoming an experienced trader, since you open and close your deals frequently, hence you gain more experience, notice patterns of the market sooner, and learn how to overcome difficulties while improving your trading skills at a fast pace. Others argue that day trading forex requires extreme concentration, which many traders fail to maintain due to ignoring importance of discretion. When a trader falls to acting unreasonably in intraday trading, he can waste the entire deposit with just a couple of loss deals.

Intraday traders learn faster?

There is a sound reasoning behind this statement, but it is only true under condition that a trader also sticks to a proper money management plan, risks the same (reasonably low) percentage of the deposit in each deal by specifying equal lot, and observes the rules of his trading system at all times.

Or do they have to stay extremely concentrated and so become exhausted and irritated soon?

The second statement is also true, since there are people whose nervous system is weaker than average, which means that they cant handle forex intraday trading by default. However, such people can still do great on timeframes from H4 and up, where they have plenty of time for making decisions regarding opening and closing the deals (although deals will be less profitable due to extended time intervals). On the other hand said statement can be opposed if a trader has no problems handling nervous situations. Actually, prejudice discussed here is rather relevant to scalping than to intraday trading. Confusing scalping and intraday trading is a common mistake made by majority of traders, which often leads to money loss.

SCALPING ON FOREX

Scalping is a way of trading such that a trader enters the market with a large volume while setting short stops and limits (510 pips), closing a lot of deals every day (520 and more), using 1-minute to 5-minute timeframes (or even the tick graph). If a trader doesnt observe fixed stop loss placement when going for this type of trading and randomly increases stops in order to accommodate drawdowns, even one deal can be enough to drain the entire deposit. Thats why a trader should possess an outstanding psychic setup to carry out scalping more or less profitably. He should strictly obey the rules of his trading system, carefully set each stop loss only once, and never move it whatever happens next. Technically, such trader is trading within one day, i.e. intraday, however scalping is a principally different type of trading, which has nothing in common with any other type.

Avoid scalping, unless you are solid like a rock

If you go for scalping forex, you should be solid like a rock and basically constitute a phenomenon of consistency and robustness. So if you are a beginner, or have some experience but show poor performance on H1H4 timeframes (and poor performance over there is exactly due to inconsistency of psychic setup), and you decide to pursue scalping you are crazy, because you wont be able to handle this type of trading without decent mental experience, you will inevitably make mistakes (even if only a few) and drain your deposit. Therefore, when you choose to go for short-term trading within one day, you should know how to tell intraday trading from scalping, and decide which type you will be going for. You will see it yourself: as soon as you are capable of pointing out differences between these two types of trading, many problems connected with short-term trading will go away.

Now lets get back to intraday trading and discuss further details.

INTRADAY TRADING (continued)

Intraday trading (day trading forex) means opening just one deal (rarely two deals) a day. A deal is opened in the beginning of a trading session and closed in the end of trading day. In terms of mental work intensity and traders capabilities this is the easiest type of trading, as its logic relies on just a few clear conditions. You observe these conditions you earn profit, as simple as that.

Short on time? Trade with pending orders

Also, when conducting intraday trading, a trader doesnt need to constantly attend the trading terminal while the deal is open. Owing to the fact that you get to open only one deal a day, you can trade with pending orders, which allow setting levels for entering and leaving the market beforehand. This feature is in fact a massive advantage of intraday trading, especially for people who cannot spend more than one hour for trading daily, for example those occupied with own business or a full-time job.

Note that not every trading system allows using pending orders, since this requires the ability of high-precision forecasting of the markets behavior in order to determine the level of trend turn by the end of day in advance. Regular intraday traders usually lack skills of forecasting; instead they tend to open deals on spot right after they receive a signal of trend turn with, and subsequently close them watching the market in real time.

All right, so what about profitability?

Profitability of intraday trading can be both small and great, as it directly depends on individual trading skills: quality of market analysis method, consistency of money management, and robustness of trading mindset. In any case, real profitability of intraday trading is in the range of 3050% per month, which can be characterized as a ratio of moderate risk to quite good profit. Below is the explanation on where does this exact profitability range come from.

In intraday trading graphic timeframes M5, M15, and H1 form the signals of entering/leaving the market. These timeframes are used for decision making when opening deals, also they impose conditions for average stop loss to be around 30100 pips and average take profit around 60200 pips. As long as we open one deal per day on average, we have 2 to 5 deals conducted per week, and 12 to 20 per month. As always, a portion of deals will prove to be lossmaking, and the rest will be profitable. Average profit on a deal comprises about 70 pips. Taking into account a varying portion of loss deals, total profit after a month of trading comprises 3001000 pips. Assuming that we allow 3% risk on a deal (stop loss of 30 pips on a $1000 deposit) and aim for minimum 6% profitability per deal (take profit is at least two times greater than stop loss), the total profitability will comprise 3050% of the deposit. This profitability is in fact very decent and realistic.

You cant earn all the pips on a long trend

Yes, intraday forex trading has its disadvantages, too. Whenever a strong continuous trend lasting for 300, 500 or more pips starts at the market, day trader can only grasp a small piece of it the portion of profit scored by the end of the day (about 150 pips). And even if trader decides to keep the deal open overnight (which significantly increases the risk), the maximum profit he can get is equal to the length of the trend, say 500 pips, and thats it. A trader could get greater profit if there were corrections on the trends way, which would give signals to open extra deals adding them along the trend.

Only one deal at a time

Besides, intraday trading denies opening multiple deals concurrently and keeping them open for extended periods (days, weeks). The reason is intraday trading systems do not consider a large set of factors (growing exponentially as trade period increases) including influence of senior timeframes such as daily, weekly, and monthly. Without analysis of senior timeframes we cannot predict where the trend is supposed to turn while we keep our deals open. If we extend trading period, were basically dealing with a sub-trend of the trend from senior timeframe (above H4 in our case), which is beyond reach of intraday analysis. Forex day trader either closes his deal at the end of day, or keeps it until next day and closes it to secure himself against sudden trend turn, although the trend may continue day after day. Thats why intraday trader is only able to grasp 20% profit or less and then just observe how a strong and confident high-profit trend passes by.

Meanwhile, position traders are making massive profits from the same trend owing to a method called pyramiding, which is basically adding deals one by one along a trend. Position forex traders are able to foresee a constant motion of a trend to one side, while intraday traders overlook such motion.

POSITION TRADING / SWING FOREX TRADING

On the graph above you can see a downtrend lasting for 2 months, which started its turn from level 1.4100. In position trading we determine the strategic target level at which this trend is supposed to end mark 1.2693 in our case. We begin adding deals along the trend starting from the trends initial point, doing it every time a trends local (inner) wave is finished (see deals 310). We aim at closing all deals at the target (strategic) level 1.2693. As you can see, sell 1 scored +1350 pips, sell 2 totaled +1200 pips, sell 3 +1000 pips and so on. In the aggregate, we could make +7540 pips on this trend.

Position trading on forex is 5.8 times more profitable than intraday

A regular intraday trader doesnt know how to determine strategic targets, hence he only trades within local sub-trends of corresponding trends from senior timeframes. A graph we examined above from the intraday traders point of view showed opportunities for 6 deals with net profit of +1300 pips. While it is not a bad result at all, position exceeded it by a factor of 5.8: 7540 / 1300 = 5,8.

Day trading vs swing forex trading

Methods of position trading can be applied not only to long-term trading. They work as well intraday, when deals can be added and aggregated within one day or couple of days. Example:

At this H1 graph you can see that 4 deals have been conducted during 6 hour period with total profit of +675 pips. Without position trading a trader would open only the first deal, thus cutting potential profit by a huge amount and leaving with just +230 pips.

Take every factor into consideration and win

Excellent results in forex swing trading are achieved by analyzing all timeframes as well as factors affecting the market on each timeframe separately. Then wave picture is plotted, which precisely reveals the main trend as well as local sub-trends constituting its internal wave structure.

Owing to such approach, we get to see the markets complex picture, which clearly points out key levels of trend development (along with start points and endpoints of sub-trends). Internal trend structures such as trend lines and trend-continuing figures allow adding deals along the trend upon breaking of said structures.

Precise determination of deal close target

As long as we know for sure at which level a trend wave is supposed to end, we calmly keep our deals open until trends target level is reached, and then fix the whole branch of profit. Or, in event the target is not reached and momentum is gone, until trend channel itself gets broken. Skillful and accurate plotting of trend channel allows closing deals at the right time with maximum profit.

Besides, this type of trading has the following advantages:

- opportunity of pausing your trading for long periods (having a rest), while still maintaining profitability level of position trading about 5 times greater comparing to intraday;

- having a lot more time on your hands for decision making;

- your deposit is exposed to significantly lower risk, since you dont enter the market with your entire volume traded in one deal. Instead, trading lot is distributed among several deals opened along the trend;

- reclaim more time for recreation and personal life;

However, there are some disadvantages, too:

- to learn position trading, a trader must have much deeper knowledge and insight, be able to think ahead and consider many variants of markets behavior. These skills can be acquired only through years of constant practice;

- learning position trading through personal experience is really painstaking, you need to spend 510 years working at the market looking for patterns and regular occurrences, which will eventually constitute main concepts of your position trading system.

For these reasons, only a small portion of traders can handle swing forex trading well (in general only banks are trading this way), and it is considered superior type of trading.